Overseas Property Blog :: guide to international real estate investment

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Archive for March, 2007

International Property News Beat

International Skiers Thicken Japan’s Fine Snow Peaks

Colorado may be the destination most revered by skiers, but worthy competition appears to be emerging from across the pacific. Japan, with its 620 powdery resorts, is fast gaining a reputation for having some of the world’s finest snow. Dry and powdery with a whopping 45 feet per year, the quality of skiing more than makes up for what the slopes lack – altitude. The tallest peak, Mount Fuji, rises only 12,385 feet, no match to Europe’s or North America’s.With quality snow available to skiers as late as early May, and off-season attractions becoming increasingly available, investors worldwide are seeing Japan as the next opportunity for profit. Citigroup, Inc from the US paid over $51 million to revamp 12 resorts, while Japanese-based Hoshino Resorts committed $84 million to restore two additional ones.

The primary focus is to attract skiers from outside the country, as the native skiing population rapidly diminishes. Massive growth in skiers from abroad was demonstrated when the town of Niseko saw a rise from 2,600 skiers in 2001 to a startling 13,000 in 2005 from mainland Asia. The neighbouring town of Hirafu saw an increase from less than 200 to over 7,000 from Australia. Skiers from South Korea rocketed from 5,000 to 15,000 in just one year.

With the growing popularity and future possibilities arising across Japan’s glistening slopes, cultural differences are becoming only a minor inconvenience. English is plastered everywhere from bus schedules to restaurant menus to aid foreign skiers. Mountain huts provide a complete array of Japanese culture for skiers, with native food, music, and traditions. Hot spring baths are even provided to offer a luxurious lull to the slope’s excitement.

For the serious skier, the quality that Japan’s slopes offer serve as an enticing opportunity, coupled by the excitement of foreign travel. As numbers increase, and the resorts continue to improve, investors look at the land of the rising sun and see what may become this generation’s next big international ski attraction. Read more about this at SFGate.

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International Property News Beat

Ulaan Baatar, Mongolia’s Mining City and its Buy-to-Let Boom

UlaanBaatar-Mongolia

Sandwiched between Russia and China, there lies a gold mine of resources, profit and growth known as the country of Mongolia. With a healthy economy and expanding wealth inside the country, Mongolia is rapidly becoming an investor’s “hot spot” in the global arena. Much of this potential wealth arises from an ideal mixture of supply and demand. An incredibly high demand for city housing – primarily in the capital of Ulaan Baatar – combined with a shortage of land supply in the prime city areas creates the ideal investment return. Most importantly in this gigantic economic reaction lies the catalyst – mining.

The mineral resources in Mongolia are enormous, providing rich supplies of copper, coal, gold, and possibly even oil. The country became the most prolific copper provider on the globe with the discovery of the world’s largest copper mine, which is expected to provide over $100 billion of ore over the next forty years. With China just to the south, exports of these natural resources are boosting the economy, creating a rising GDP (Gross Domestic Product) each year. This rising GDP is primarily the result of high copper prices, which rose a whopping 250% since 2002, and the production of gold. Mining is responsible for nearly one fourth of the GDP, three fourths of the country’s exports, and 67% of the industrial outputs. Not surprisingly, some of the world’s largest mining companies such as BHP, Rio Tinto, Ivanhoe, and Centerra Gold are taking advantage of resources by moving in and planting their shovels into Mongolia’s rich soil.

This influx of mining organizations, combined with the already-high amount of international trade with countries such as China, is inviting countless expatriates, ambassadors and executives to the city causing much of the demand in high-end city housing. When turning to the need for top quality housing, current figures show prices to be within the $900 to $1,300/sqm range. High-grade living rental profit is upwards of $17/sqm per month, causing average rental returns of about 21%. Profit yields from residential accommodation are the highest in all of Asia, coupled with a tremendously high 30% yearly real estate appreciation growth rate.

In addition to the constant flow of foreign business executives, half of the country’s population is dispersed throughout rural areas of the country causing a constant flow of real estate buyers from outside the city creating an unequal displacement of land ownership in the city. This, in turn, has increased demand and limited supply.

Conservative economy predictions based on previous trends can be used to demonstrate the enormous cash return possible five years in the future. Assuming that there is a 5% salary increase per annum, interest rates drop 0,5% per annum, and a conservative 20% yearly capital appreciation, a $100,000 investment would yield $362,762 five years from now – a total profit of $262,762.

One concern for foreign property owners, taxes, is discounted by the surprisingly low taxes placed on property owners in Mongolia. There are no property capital gains tax and no withholding tax. Real estate purchase costs are hardly noticeable. Freehold ownership is practised in Mongolia, meaning the purchaser owns not only the property, but also the land it stands upon. This results in making an investor’s ownership rights not only the highest, but also the most secure. With no restrictions on foreign property owners, an investor is free to do nearly anything, whether it be pledging, selling, or leasing the property.

The economic future of Mongolia appears bright as more of Mongolia’s natural resources continue to be discovered, collected, and sold, and the country’s economic growth continues to rise. As the demand for high-end accommodations in the city increase, and supply decreases, investment returns will continue to climb bringing untold amounts of wealth both to the country, and to those prepared to take advantage of the growing economy.

For more information on buy-to-let real estate developments in Mongolia’s capital, Ulaan Baatar contact UK-based Property Frontiers.

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One man’s riches means another man’s poverty – The Million Pound Question

The saying “One man’s riches means another man’s poverty” rings truer than ever in today’s international real estate market. Price fluctuations, along with changes in demand and supply in different parts of the world are creating interesting representations of the value of money. Take for instance, what one million pounds sterling – approximately $1.9 million in US currency – can purchase.

In Edinburgh, you could buy an enormous town house boasting multiple reception rooms with expensive crown mouldings and chandeliers. Likewise, Oxfordshire offers you seven bedrooms, over six acres of land, and gardens.

Just east of Oxfordshire places you in London, where purchasing a home is an entirely different story. Because of a 28.6% growth in prices due to a combination of increasing demand and diminishing supply in prime real estate, the best locations in London could only give you 600 to 1,000 square feet. This increase in property value is largely due to wealthy foreign buyers from countries such as China, Russia, India and the Middle East. Instead of exchanging one piece of London real estate for another, these buyers come from outside the country, meaning the purchase of one property does not release the availability of another which ultimately drive prices upwards.

Despite this drastic difference in the UK, the value of the British sterling is not to be underestimated when taken overseas to the American continents, where foreign buying is not as rampant. Prices of apartments with dazzling Manhattan skyline views are down by a startling 34% from five years ago, giving you over 1,000 feet of luxury for $2 million. Prime locations in South America offer breathtaking island retreats with more rooms and luxuries than can be imagined.

In Angra dos Reis, a Brazilian city south-west of Rio de Janeiro with a beautiful coastline of over 300 islands, luxury villas are also a target for investment because of standard features like 8+ bedrooms, two saunas, swimming pool, waterfall, jacuzzi, barbecue, private beach and an ocean front pier. Like Brazilian broker Judice de Araujo Esteves says, “buying outside of traditional European and North American real estate markets is certainly more risky, but if they invest correctly, they can have better profits. This happens in all developing countries.”

The end result shows that moving out of the popular well-known areas of real estate and looking into carefully chosen emerging markets, opens up opportunities of high returns in the long run, which would only be a matter of time for parts of South America, Eastern Europe, and the far east set to become the next “London” in real estate.
Read more about this over at Forbes.

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Malaysia’s housing industry

Malaysia´s housing property market is taking a breather due to the current excess supply and cautious consumer sentiment, analysts say, citing hikes in fuel prices and interest rates last year as dampening the enthusiasm of property buyers.

According to government data, the overhang in the residential market increased to 22,185 units in the first half of 2006 from 15,083 units in the same period a year earlier.
Housing developers said the soft market has continued right up to the end of 2006. The Malaysian Developers Council says it expects the industry to show negative growth in the fourth quarter of 2006, continuing the weak trend of the last eight quarters.

International Property New Beat

Surge in Global Real Estate Investment

Global real estate investment has never had it this good according to the new Jones Lang LaSalle report “Moving Further and Faster”…

2006 experienced record level volumes of global real estate investment with a 40% increase in investments in 2006 from 2005 amounting to a record $900billion total investment. The lion’s share of global real estate investment continues to be traditionally commercial real estate which accounted for $682billion in 2006, a surge of 38% over 2005, and nearly double 2003 volumes.

Cross border transactions now represent 42% of total investment volumes which has grown by 34% from 2005 levels. Inter-regional investments grew from 23% in 2005 to 29% in 2006.

The breakdown of the $900 billion global real estate investment in 2006 is as follows:

  • Direct commercial real estate investments accounted for $682billion,
  • Investors privatised REITs and other listed real estate owning entities totalled $48bn,
  • and purchased multi-family residential investments totalled $170 billion.

According to the CEO of Jones Lang LaSalle’s International Capital Group, Tony Horrell, “Global real estate markets performed very strongly throughout 2006; it was the first year that all major developed and emerging market returns were both aligned and positive. Investment was driven by increased allocations to the asset class, growth in investible stock and by the increased attention of opportunistic private equity players who identified relative value in the sector. These increased flows into real estate gave rise to two notable phenomena in 2006 – an increasing number of ‘mega-deals’, and continued globalisation of the asset class.” Horrell also pointed out the collective rise of 240% (US£39billion) in Global funds invested in the US, UK & Japan.

  • Global funds dominated the German market in particular, purchasing 40 percent (by value) of all German commercial property traded.
  • US investors expended $18billion in the UK, France & Germany (a 51% increase).
  • UK investors spent $18billion principally in Germany (an increase of a staggering 200%)
  • Middle Eastern investors spent about $13billion principally in the US, UK, Germany & South Africa (a 14% increase)
  • And Australian investors spent $12bn, principally in Germany and the UK

Horrell added: “Germany’s relative attractiveness has increased significantly due to a unique combination of willing domestic sellers, underweight cross-border investors, positive yield spreads and a recovering economy. Japan offers investors exposure to a recovering economy and yield spreads of almost 200bps”.
According to Padraig Brown, Global Strategy and Research Director at Jones Lang LaSalle, “Emerging markets had a strong year with over $40bn of transactions recorded (up 74%). Many of these markets have appeared on investor’s radars only recently and are exhibiting exhilarating rates of growth, with the Russian market expanding by over 700% during 2006 and strong deal flow in China, Turkey, Mexico and Brazil.”

“Real estate fundamentals remain strong, with solid economic growth projected, vacancy rates remaining low in most major markets, and development pipelines remaining modest. Rental growth should help support recent yield compression, however investors should note that the pricing differential between prime and secondary product and markets has been lowered and ensure that risks are sufficiently factored into bid prices.”
Regional Highlights: Europe

  • Europe became the world’s most active real estate investment market in 2006 with $305billion invested in the region in 2006 (a 44 % increase from 2005)
  • There was a distinct shift in the UK’s long term dominance of the European market in 2006 were total transactions amounted to US$101bn (4% below 2005) with investment volumes increasing strongly in both Germany and France.
  • Germany was the major global real estate story of 2006. A combination of willing domestic sellers, aggressive cross-border investors, positive yield spreads and a recovering economy resulted in transactions totalling US$62bn – growth of over 140% in constant currency terms. The German market now accounts for 20% of European volumes (up from 12%).
  • The French investment market grew by 70% to $30bn or 10% of European volumes (up from 8%).

Regional Highlights: North and South America

  • Real estate investments in North and South America were US$283bn in 2006, up 31 %.
  • Cross-border investment represented 25 % of total investment (up from 16 % in 2005) and inter-regional investment reached 22 % of total investment (15 % in 2005).
  • Investment markets in the Americas region are overwhelmingly located in the U.S. (96% of the region’s transactions by value, and 40% of global investment).
  • Other investment markets include Canada and the rapidly growing cross-border markets of Latin America – dominated by Mexico and Brazil.

Regional Highlights:Asia

  • Real estate investments in Asia in 2006 were $94bn, up 41 %.
  • Cross-border investment represented 32 % of total investment (up from 29 % in 2005) and inter-regional investment was 22 % of total investment (18 % in 2005).
  • Japan’s resurgence dominated the Asia Pacific market where transaction volumes surged 128% to US$52bn – 55% of total investment in the region.
  • Yield spreads were guaranteed for investors in Japan due to its interest rates which remain the world’s lowest.

Read the full Jones Lang LaSalle report here. What are your thoughts about commercial real estate investments in 2007? Do you think they’ll surpass 2006 levels? The Jones Lang LaSalle report is quite optimistic about 2007.

We would like you to check out the new International Herald Tribune Real Estate Blog – Raising the Roof. And don’t forget to drop by our own overseas property forum, it’s new and needs your support.

International Property New Beat

New Frontiers in China’s property law heralding private property rights

China is moving towards a new revolution in private property rights.

Although China’s economic and social conditions have changed dramatically with its emergence as an economic force, its private property rights have remained untouched and so far looked out of context. But on Sunday, as its top legislators urged the passage of a new law to protect private property, the pieces of economic, social and private property rights now appear to be falling into place.

China, a dominating communist force of the 20th century, has altered its contours significantly and is poised for another swing. The new bill, which is likely to be cleared by the parliament next week states that “the property of the state, the collective, the individual and other obliges is protected by law, and no units or individuals may infringe upon it“. This will help protection of private assets and stop any illegal expropriation. Although it will not solve all the issues pertaining to the property rights in China, it would provide a good balance between private investment and state control.

As the amount of private investment in China’s economy substantially increases, it is very important for investors and individuals to protect their property rights. The 40 page bill states that “the lawful property of individual persons shall be protected by law”, which would provide a boost of confidence to investors in private property.

Other major beneficiaries will be farmers who would get protection against illegal land seizures. This could bring to rest the farmers’ movement initiated by farmers to protect their farmland against illegal land seizures and transfers to commercial developers, often without adequate compensation.
It took much longer than anticipated for the legislators to bring about the much-desired change in the property rights law in China; it is a leap towards democratisation of China. However, critics still believe that the bill has a tone that recognises the state owned sector as the most dominating and leading force.

Whatever it is, we would say a great move for another revolution. As you can see in the tabs on the top, we now have a new forum where we would be glad to hear your thoughts. It’s very easy to join, try it out.

Other China property law articles:

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